Migration and the European Job Market Rapporto Europa 2016 1
Table of content Table of Content Output 11 Employment 11 Europena migration and the job market 63 Box 1. Estimates of VAR system for Labor migration effects 75 The European malaise: insufficient demand 63 Fiscal policy 63 Investment 63 Box 2. Some empirical evidence on the relation between public 75 in investment and potential output Box 3. Public spending 75 Competitive imbalances in the European Union 63 Banking Union 63 2
I. Output 3
Figure 1. Real and potential output and output gaps Euro Area Non-Euro Area USA 4 4 2 2 2 1 0 0 0-1 10,500 10,000 9,500 9,000 8,500 8,000 7,500 7,000 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Lehman -2-4 4,000 3,600 3,200 2,800 2,400 2,000 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Lehman -2-4 18,000 16,000 14,000 12,000 10,000 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Lehman -2-3 -4 GAP_Euro area GDP_Euro area POT_GDP_Euro area GAP_NON_EA GDP_NON_EA POT_GDP_NON_EA GAP_United States GDP_United States POT_GDP_United States 4
II. Employment 5
1.08 Employment Growth since Financial Crisis Core Euro Area South 1.04 1.06 1.04 1.02 1.00 0.98 1.00 0.96 0.92 0.88 0.84 0.96 2008 2009 2010 2011 2012 2013 2014 2015 2016 Euro area GERMANY FRANCE NETHERLANDS FINLAND AUSTRIA 0.80 2008 2009 2010 2011 2012 2013 2014 2015 2016 Euro area ITALY SPAIN PORTUGAL GREECE CYPRUS IRELAND Euro Area New Member States Non-Euro Area 1.04 1.08 1.00 1.04 0.96 0.92 1.00 0.88 0.96 0.84 0.92 0.80 0.76 2008 2009 2010 2011 2012 2013 2014 2015 2016 Euro area SLOVAKIA SLOVENIA ESTONIA LATVIA LITHUANIA 0.88 2008 2009 2010 2011 2012 2013 2014 2015 2016 Euro area Non-EA United Kingdom SWEDEN DENMARK POLAND HUNGARY Czech Republic ROMANIA BULGARIA 6
III. Migration 7
Figure 3.1. First time asylum applicants in the EU28 by main country of origin Source: own elaboration on Eurostat. 8
Cumulative change in migrant and native population 1990-2014 (1000) Shrinking native populations 9
Cumulative change in migrant and native populations in the last quarter of a century. Total population in Europe has increased by 34.3 million, of which nearly three quarters were migrants. Most of the population increase is concentrated in the Euro Area (29.1 million). The highest increases were recorded in the five most populous countries of the EU, with some eastern European countries recording negative numbers. After EU enlargement, immigration has increased in Italy and the UK, Belgium, Sweden, Austria and the Czech Republic, but fallen in Germany and Spain. Poor and crisis countries like Portugal and Greece, but also Romania, Poland and Bulgaria are net emigration countries. 10
Big countries attract large numbers, but relative to total population, immigration remains low 11
Share of immigrants in total employment 12
Gap between nationals and migrants employment rates A negative gap means immigrants work more than natives A positive gap means immigrants are disproportionatels using the welfare system they steal our jobs We work for them 13
However, the share of immigrants in total unemployment is very different across EU 14
Distribution of native population by educational attainment in 2014 Distribution of migrant population by educational attainment in 2014 15
What is the impact of migration on wages and employment? Aggregate EU data hide the opposite dynamics in the South and the core 16
Wage levels in the core (periphery) attract (deter) workers Wage increases attract foreign and domestic workers Growth increases employment Immigration to core Migration increases wages in the periphery and reduces emploament Migration Employment Wage level Migration Employment Wage level Migration Employment Migration Native employment Wages Wage level 17
Periphery Impulse response function to a migration shock The effect on wages is significant only in the second period and then fading to zero. The elasticity of wage is 0.18, wages will grow by 0.18% to a 1% acceleration in migrant active population growth. the effect on natives employment rate is negative and significant from the first period after the shock to the fourth the initial positive impact is significant only at 10% level. These estimates imply an elasticity of -4.5% for the employment rate, a 1% acceleration in migrant active population reduces the employment rate by 4.5%. 18
Impulse response functions to a migration shock in the periphery Wages Employment.03 Dlog(W).5 D(ERN).02 0.01 -.5 0 -.01-1 0 2 4 6 0 2 4 6 step 95% CI Orthogonalized IRF 19
Core Impulse response function to a migration shock The impact is similar to the overall one wages show no significant response to migration, employment reacts positively but the response last one period only. The implied increase in natives employment rate responding to a 1% acceleration of active migrant population is 3.5%. 20
Impulse response functions to a migration shock in the core Wages Employment.002 Dlog(W).4 D(ERN) 0.2 -.002 0 -.004 -.2 0 2 4 6 0 2 4 6 step 95% CI Orthogonalized IRF 21
To sum up Strong evidence for complementarity between national and foreign workers in core countries, periphery crowding out effect of employment is strong. This might be due to the low activity rate of native populations, due to their high share of low skilled workers which face the competition of immigrants with the same skill level. positive wage effect might be due to local human capital. In the periphery, low skilled workers are less willing to accept the kind of low skilled occupation that are usually filled by migrants. This explains the negative effect on employment and the positive effect on wages. In core countries, there is no crowding out effect of employment, because these countries have a low share of low skilled nonimmigrant workers. Hence, there are stronger complementarities with high skilled workers, and this results in higher wages but unchanged employment rates for the non-migrant population. 22
IV. Investing for job creation 23
How to handle the fallout from the migration crisis? In the periphery: increase skills (structural reforms) Increase employment: Increase demand reduce output gap (short term) How to increase demand? Monetary policy is at the limit Fiscal policy is seriously restrained by debt dynamics, especially in the South One of the main shortcomings in the Euro Area is low investment 24
ECB: high liquidity 2 Fiscal position still restrictive 0-2 -4-6 -8-10 -12-14 2000 2002 2004 2006 2008 2010 2012 2014 2016 Actual deficit Euro area (12 countries) Actual deficit Japan Actual deficit United States 25
The investment ratio has fallen substantially in all Southern European crisis countries. Gross fixed capital formation as ratio to GDP Euro area ITALY.24.22.23.21.22.20.19.21.18.20.17.19 00 02 04 06 08 10 12 14 16.16 00 02 04 06 08 10 12 14 16 SPAIN PORTUGAL.32.32.30.28.28.26.24.24.20.22.20.16.18 00 02 04 06 08 10 12 14 16.12 00 02 04 06 08 10 12 14 16 GREECE IRELAND.28.32.24.28.20.24.16.12.20.08 00 02 04 06 08 10 12 14 16.16 00 02 04 06 08 10 12 14 16 26
If private investment is deterred by insecurity during the crisis, could public investment compensate for it? Our VAR estimates show public investment has a significant and strong effect on economic growth in Europe. the aggregate direct and indirect impact on public investment is stronger than for private investment this impact can even be leveraged by shifting public spending from consumption to investment, the negative effect from budget deficits remains neutralized. countries without fiscal space, economic growth needs to be reignited by the re-composition of public spending in favour of investment. 27
Table 6.1. VAR coefficients Δlog(PUBinv) Δ l o g ( P V T i n v ) Δ l o g ( P G D P ) Δlog(PUBinv) 0, 4 1 5 0. 6 1 1 * * 0. 0 4 0 * [ 0. 3 8 6 ] [ 0. 2 7 3 ] [ 0. 0 2 1 ] Δ l o g ( P V T i n v ) 0, 3 9 3 0. 4 8 9 * * 0. 0 8 0 * * * [ 0. 4 0 0 ] [ 0. 2 2 6 ] [ 0. 0 1 7 ] Δ l o g ( P G D P ) - 0. 1 7-0. 7 9 0. 6 8 4 * * * [ 1. 4 4 3 ] [ 1. 0 0 0 ] [ 0. 0 4 8 ] Δ l o g ( P B A L ) - 0. 9 6 0 * * 1. 2 6 5 * * * 0. 0 4 7 * * N 298 Countries 15 J 12.8 [ 0. 3 9 7 ] [ 0. 3 2 6 ] [ 0. 0 1 9 ] Fiscal consolidation improves LT growth Standard errors in brackets. *significant at 10%; significant at 5%; significant at 1%. PUBinv=public investment at constant prices; PVTinv= private investment at constant prices; PGDP=potential GDP; PBAL=primary balance in percentage of GDP. J=Hansen test of over-identifying restrictions A 10% increase in public investment has the effect of increasing potential output directly by 2% and indirectly by an additional 3% due to its effect on private investment. 28
What kind of public spending could increase economic growth? R&D expenditure Tertiary education expenditure. Welfare expenditure (pension and health transfers) 29
Results are consistent with the growth literature: innovations and education are good for growth. Welfare expenditure is negatively correlated with potential output growth Welfare expenditure consists of pensions and health expenditure; increases in expenditure therefore capture the impact of aging population with lower potential employment and output. We test whether this is a valid interpretation, by introducing the net migration variable. net inflow of migrants fully compensates the negative impact of aging on growth, probably because it fills a lack of domestic labour supply. 30
V. Wage developments 31
Investments flows to the highest rates of return, which depends on wage developments We update the CER Index of competitiveness Derived from national rates of return relative to Euro Area average Calculated equilibrium wage levels CCI: ratio of actual over equilibrium wages 32
Lehman.20.18 Professor Bretton Woods Return on capital in major economies Euro.16.14.12.10.08.06.04 60 65 70 75 80 85 90 95 00 05 10 15 Euro area JAPAN GERMANY United Kingdom United States West Germany FRANCE 33
Figure 7.2 Core countries: return on capital Austria Belgium Crisis countries: return on capital Italy Spain.160.165.175.160.156.152.160.170.165.155.150.148.155.160.145.144.140.136.150.145.155.150.140.135.130.132.128.140.145.140.125.120.124 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16.135 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16.135 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16.115 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Euro area AUSTRIA Euro area BELGIUM Euro area ITALY Euro area SPAIN France Germany Portugal Greece.165.160.175.16.160.155.156.152.170.165.15.150.148.160.14.145.140.144.140.136.155.150.145.13.12.135.132.140.11.130 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16.128 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16.135 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16.10 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Euro area FRANCE Euro area GERMANY Euro area PORTUGAL Euro area GREECE.175 Finland.170 Netherlands.24 Ireland.26 Cyprus.170.165.160.155.150.165.160.155.150.22.20.18.24.22.20.18.145.145.16.16.140.140.14.14.135 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Euro area FINLAND.135 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Euro area NETHERLANDS.12 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16.12 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Euro area IRELAND Euro area CYPRUS 34
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The improvement in German competitiveness was driven by increases of capital productivity, while this has been a problem in France, Italy and Greece. Structural improvements in productivity are the only way to improve the equilibrium wage and therefore the living standards in a country. The cost of capital equipment had a negative effect in Germany, but a positive effect in France and Greece, while above average inflation for output improved profits in Germany, but hardly in the other countries. 36
Lehman Lehman Professor the major difference between Italy and Germany is the rapid increase in equilibrium wages, while they have been stagnant in Italy. Figure 33. Wage dynamics in Italy and Germany 44 42 40 38 36 34 38 36 34 32 30 28 32 26 30 24 28 22 26 96 98 00 02 04 06 08 10 12 14 16 20 96 98 00 02 04 06 08 10 12 14 16 WAGE_GERMANY EQ_GERMANY WAGE_ITALY EQ_ITALY 37
Conclusion Economic and labour market dynamics reflect important structural variations within Europe This is also reflected in the ways the labour market responds to immigration Improving employment and wages in the core Substituting employment between low skilled labour, thereby preventing wage reductions in the periphery 38
Conclusion Investment needs to be stimulated, but classic macroeconomics has reached its limits Monetary policy Fiscal policy Wage increases and higher consumption require improvements in productivity 39